Military Update

Tricare fee hikes blocked, drug co-pays likely to pop

By Tom Philpott

Published: May 31, 2012

The Senate Armed Services Committee has agreed with its House counterpart to block the Obama administration’s plan to phase in some new and some significantly higher Tricare enrollment fees and deductibles for military retirees and their families.

But the Senate panel has signaled that the administration can use existing authority to raise beneficiary co-pays on brand name prescription drugs filled through retail pharmacies or the Tricare mail order program.

The absence of any new Senate prohibition, combined with the House committee’s vote in May to raise at least some drug co-pays effective Oct. 15 this year, means Tricare beneficiaries are almost certain to see prescription drug costs off base climb starting this fall.

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Still to be determined is how steep the initial increases will be and how they will be allowed to rise in future years.

If a House-Senate conference committee accepts the Senate panel’s stand on the issue, the Department of Defense could implement almost all of the prescription drug increases proposed in its five-year budget plan. In doing so the department would capture at least half of total projected health care savings it sought under the Tricare reform package unveiled in February.

If the House committee’s plan were adopted instead, drug co-payments would rise more modestly than the administration planned. But retirees eligible for Tricare for Life, most of them elderly, would be required to have maintenance drugs for chronic conditions filled through the mail order program, at least for a year.

Mail order means cost savings to Tricare and to beneficiaries. They would get a three-month supply of pills for the same co-pay charged for a 30-day supply at retail outlets. To date, retirees have been allowed to discover the cost-savings and convenience of mail order at their own pace.

The Senate committee considered the House approach to forcing older retirees to try mail order. It’s a cost-saving maneuver that allowed the House bill to propose more modest drug co-pay increases than the administration’s wants. In the end, a majority of senators on the panel decided it was “not good policy” to force only one-class of retirees to use mail order, a congressional source explained.

Both committees refused to accept the Department of Defense’s plan to raise out-of-pocket costs on military retirees by raising their enrollment fees for Tricare Prime, the managed care benefit; by establishing a first-ever enrollment fee for Tricare Standard, the fee-for-service insurance plan option, or Tricare Extra, the preferred provider network option; and by establishing a first-ever enrollment fee for elderly under Tricare for Life, the prized insurance supplement to Medicare.

These proposals are dead, at least until after the November elections when lawmakers hope finally to muster the political courage to address the nation’s debt crisis. By Dec. 31, Congress must negotiate a debt-reduction compromise or a “sequestration” mechanism, created by last year’s Budget Control Act, will force across-the-board cuts. That would include an additional $500 billion from major defense accounts over a decade. Policymakers and lawmakers alike describe it as irrational, even “mindless.”

The armed services committees clearly don’t want to endorse higher Tricare fees and deductibles in isolation. One Senate source said higher enrollment fees on military retirees could be seen as acceptable if included in some government-wide effort to control entitlement spending including reforms to make more solvent programs like Medicare and Social Security.

The Senate committee has embraced the administration’s call for an independent commission, appointed by the president, to recommend reforms to military compensation, including retirement. Any retirement changes could only impact future service members, not the current force. Congress would accept or reject commission recommendations but not modify them. This would duplicate rules lawmakers need when facing the politically difficult process of closing military bases.

The House committee has rejected the concept of an independent commission to re-shape military compensation. So a House-Senate conference committee will decide if it gets included in the final defense bill.

Both committees have signaled that raising drug co-pays, particularly for brand-name prescriptions off base, is an acceptable way to raise beneficiary cost shares as military health costs continue to climb.

Both the House bill and the administration’s plan would leave the co-pay for generic drugs at retail outlets at $5. The House bill would authorize co-pays at retail to be raised from $12 to $17 for brand names on the military formulary and from $17 to $44 for non-formulary brand names.

For mail order, the current $9 co-pay for 90 days of brand drugs on formulary would be raised to $13, and the $25 co-pay for non-formulary drugs would increase to $43.

These are significant increases but smaller than sought by the administration, which the Senate committee declined to stop. It would put no new limit on existing authority to adjust drug co-pays. Officials said current law only prohibits Tricare from setting co-pays more than 20 percent above the average cost of brand name drugs for active duty family members or more than 25 percent higher for retirees. These limits wouldn’t be exceeded under the administration’s plan, a congressional source explained. Tricare officials are expected to confirm this by late summer.

The administration proposed that in October the co-pay on brand-name drugs at retail be raised to $26 and thereafter climb by $2 a year until reaching $34 in October 2016. Co-pays for brand drugs at mail order would jump to $26 from $9 for a 90-day supply, and then climb to $34 by 2016.

For 2017 and beyond, the administration wants co-pays adjusted yearly to match medical inflation. The House committee would limit co-pay adjustments to no more than percentage increase in military retirement.

Under both the House bill and administration’s plan, the co-pay for generic drugs would remain at $5 at retail at least for several years, and base pharmacies would continue to fill prescriptions at no charge.